In this trading era, there are many candlestick chart patterns are formed in the market. But there is a unique chart pattern in existence named Hammer. This chart pattern works well in the trendy market. Its primary work is to reverse the trend of the market.
If this chart pattern you will see in the live trading session then you must trade it, because it has more power to possibly change the overall trend of the market. This chart pattern is mostly formed on the top of the trendy market.
The hammer chart pattern is the most useful and reliable in the market. Behalf of this chart pattern a trader can easily take the trade. Its work is to suspend the bearish trend and make the bullish trend in the market.
This chart pattern is famous because the Forex trader is aware of its power in the market. Because in the forex market, it has formed many of the time. If you want to see an example then you must open any pair chart of the forex. The time frame is according to you. For easier I have posted an example of the hammer candlestick. It is on the next pg.
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How The Hammer candlestick chart pattern forms in the market
Now the point comes to how this chart pattern has formed in the market. As well as you know its looks like a real hammer and it works. Real hammers beat the things like Iron, wood, etc. But the hammer chart pattern has a different work in the market. It reveals the trend of the market.
The hammer chart pattern has a Small body, a small wick on the upside, and a long down shadow. The lower shadow must be 2x from the real body but not more than four times. One more thing you must keep in your mind about the upper shadow of the hammer it must be 0.2x from the real body.
If the upper shadow is more than 0.2x from the real body then this chart is not valid. We must check all criteria about the hammer chart pattern in the market.
Mainly, This chart pattern has three combined candlestick chart patterns. The prior candle must be a red healthy closed candle, just after the Maine candle name hammer, and after that, the bullish candle must be formed.
In this chart pattern, the colour doesn’t matter. The matter is a place of formation. If it’s formed in the range-bound trend then it’s not work well. But if it’s made on the pure top and the market is in a bull mood with 6 to 8 consecutive candles then it works well otherwise not.
It is mostly the opposite chart pattern of the shooting star. It changes the uptrend to a downtrend.
How To Take Trade on It?
Now the question arises of how to take it. The simple answer is to wait for the close of the candle below the pattern. You must keep it in your mind before trading this chart pattern you must check the formation of the pattern.
The perfect time to trade hammers is bottom of the market. If the chart pattern has formed on the new bottom then it will work properly. Let’s understand it with the help of the example.
In this example, You can see the chart pattern has formed on the bottom of the market after the formation market has started to move upside. Before formulation you can see in this example there is a significant downtrend and the hammer has formed on the bottom of the market.
After the formation of the hammer, one of the candles has given a healthy closing above the hammer. It’s confirmation the charge of the market is now in the buyer’s hand. Now buyers will control the market movement on behalf of the chart pattern.
What is the stop-loss on hammer
how to set the stop loss this question is admitted in the primary section. Before taking the trade on any chart pattern you must be aware of your stop loss. The stop loss is known as a saver of the capital. If you don’t like using stop loss then your trading carrier will be in trouble.
The perfect stop loss is on this chart pattern below the hammer with a little bit of buffering. You know as well as if we do not punch the order with the buffering then we have a bit of a chance to hit the sl and move the market in our target direction.
Many traders put the stop loss on the last swing low of the market. But I want to tell you if your all setup has been met then there is no chance the market will hit your stop loss.
What is the target?
It’s the primary section of every trader. All traders want to become profitable traders but many trade with greed and fear. Those types of traders are greedy when the market is moving in their target direction so that’s why they feel the market will give them more and more money. But it does not happen sometimes.
According to my opinion, the perfect target is two times from our entry point. Spouse we entered in $ 1510 and the stop loss is $1490 then our target will be 40 points meaning the difference between the entry and our exit point.
Don’t be greedy when the market is following in our feaver. Traders must book partial profit for the running trade. But it looks good ready many of the trade has not followed that. This is called secure profit booking. If the market has not reached our desired target and comes back without hitting the target.
Then we start regretting. I wish I would have booked the profit at that time. If you want to save from this regret then you must book some partial profit book.
